### Method 1 – Calculate Cronbach’s Alpha in Excel

__Steps:__

- Go to
**Data >> Data Analysis >> Anova: Two Factor Without Replication**and click on**OK**.

The Anova: Two Factor Without Replication window will pop up.

- Type
**$C$5:$F$14**in the**Input Range:**to populate the dataset and**$B$16**in**Output Range:**to get the output and click**OK**.

We’ll get the details of Anova: Two-Factor Without Replication data starting from cell B16.

Use the data in cell E38, which is MS for Rows, and in cell E40, which is MS Error, to calculate Cronbach’s Alpha.

- Type the formula in cell
**B45**and hit**ENTER**to get**Cronbach’s Alpha**. I’ve shown the formula in cell**C45**using the**FORMULATEXT**function so that you can understand it.

`=1-(E40/E38)`

We got **Cronbach’s Alpha **value for our dataset. The value is approximately 0.89 which indicates a strong internal relationship within the questions of the questionnaires.

### Method 2 – Compute Jensen’s Alpha Using Beta Calculation in Excel

__Steps:__

**Portfolio Returns **and **Market Returns **data. We need to calculate the average of these data. Use the **AVERAGE function** to do so.

- Type the formula in cell
**C17**and press**ENTER**to get the**Average Portfolio Returns**. I’ve shown the formula in cell**C18**to ease your understanding.

`=AVERAGE(C5:C16)`

- Type the formula in cell
**D17**to get the**Average Market Returns**and press**ENTER**.

`=AVERAGE(D5:D16)`

We need to calculate the Beta value. We need to get the **Covariance **and **Variance**. We’ll use the **COVARIANCE **function and the **VAR function** to do so.

- Type the following formula in cell
**C21**and press**ENTER**to get the**Covariance**.

`=COVARIANCE.P(C5:C16,D5:D16)`

- Type the following formula in cell
**C22**, and hit**ENTER**to get the**Variance**.

`=VAR.P(C5:C16)`

**Beta **is the ratio of **Covariance **and **Variance**.

- Type the formula in cell
**C23**and press**ENTER**for the**Beta**value.

`=C21/C22`

The **Risk Free Rate **is **1.30%**. Now, we have to calculate the **Expected Rate of Return**. We know that the formula to calculate **Expected Rate of Return **is as follows.

**Expected Rate of Return = Risk Free Rate + Beta * (Market Returns – Risk Free Rate)**

- Type the following formula in cell
**C27**and hit**ENTER**to get the**Expected Rate of Return**.

`=C26+C23*(D17-C26)`

**Jensen’s Alpha**, also known as Alpha, is the difference between the Average Portfolio Return and the Expected Rate of Return.

- Type the formula in cell
**C28**and hit**ENTER**to get**Jensen’s Alpha**.

`=C17-C27`

Jensen’s** Alpha **is **3.40%**.

### Method 3 – Calculating Alpha Using CAPM Formula

We can calculate **Alpha** in Excel using the **CAPM** formula. **CAPM **stands for Capital Asset Pricing Model. The formula to calculate **Alpha **is as follows.

**Alpha = Portfolio Returns – Expected Rate of Return**

where,

**Expected Rate of Return = Risk Free Rate + Beta * (Market Returns – Risk Free Rate)**

Our dataset includes **Portfolio Indicators **like **Returns of the Portfolio**, **Risk-Free Rate**, **Beta**, and **Market Return**. We can calculate **Alpha **using these parameters following the **CAPM **formula.

Now we need to calculate the **Expected Rate of Return**.

- Type the following formula in cell
**C11**and press**ENTER**to get the**Expected Rate of Return**.

`=C6+C7*(C8-C6)`

- Type the following formula in cell
**C12**and hit**ENTER**to get the value of**Alpha**.

`=C5-C11`

You got the **Alpha **value. From the figure, we can see that **Alpha **is **3.41%**.

### Method 4 – Calculating Alpha for Portfolio of Multiple Securities

__Steps:__

- Type the following formula in cell
**C16**and hit**ENTER**to calculate the**Portfolio Returns**.

`=C10*E10+C11*E11+C12*E12+C13*E13`

Calculate **Portfolio Beta**.

- Type the following formula in cell
**C17**and hit**ENTER**to calculate the**Portfolio Beta**.

`=D10*E10+D11*E11+D12*E12+D13*E13`

Calculate the **Expected Rate of Return **in the same fashion.

- Type the following formula in cell
**C18**and hit**ENTER**.

`=C6+C17*(C5-C6)`

We’ll get the **Expected Rate of Return **in this way.

Calculate **Alpha **by subtracting the **Expected Rate of Return **from the **Portfolio Returns**.

- Type the following formula in cell
**C19**and hit**ENTER**to do so.

`=C16-C18`

You got the **Alpha **value by following this method. The value is **0.25%**.

## Takeaways from This Article

If you’ve followed this article properly, you’ll be able to:

- Calculate
**Cronbach’s Alpha**for any questionnaires. - Compute
**Jensen’s Alpha**for any portfolio.

## Things to Remember

While you’re working on **Alpha**, you should be careful about some aspects.

- Use the
**COVARIANCE.P**and**VAR.P**functions properly. - Check the
**Anova**settings thoroughly.

**Download Practice Workbook**

You can download our practice workbook from here for free!

## Related Articles

- How to Add Stock Data Type in Excel
- [Solved]: Data Types Stocks and Geography Missing Problem in Excel
- How to Calculate Beta in Excel
- How to Calculate CAPM Beta in Excel
- How to Download Historical Stock Data into Excel

**<< Go Back to Stocks In Excel| ****Excel for Finance**** | ****Learn Excel**

selamat malam, saya ingin bertanya terkait jensen alpha untuk kebutuhan skripsi, apa perbedaan dari portofolio return dan market return? lalu bagaimana cara menghitung market return? terimakasih, mohon bantuannya.

Hey, Ayu Indah! Thank you for your query.

Regarding your query, Market return is basically the return that is generated by a broad market index. It deals with the whole market for a particular time period and calculates the value of the market as a whole.

On the other hand, the Portfolio return basically indicates the return generated by a specific investment portfolio or fund.

To differentiate between these two returns, market return is the benchmark that is followed when calculating portfolio return. When calculating market return, no risk factor is taken into consideration. But, when calculating portfolio return, the risk factors are calculated and the market return is taken as a benchmark to determine the gains and losses of the investment portfolio.

After calculating both these returns, Alpha can be calculated. And, with positive alpha, it can be decided that there was outperformance to gain profits. And, negative alpha suggests that, with risk factors, the investment portfolio can result in losses.

To calculate market return, the whole market is taken into consideration and a particular time is considered. So, to get this, the beginning value of the market during the timeline is recorded and the ending value of the market during the timeline is also recorded. Following, the total dividends or net income is calculated during the timeline.

Then the market return is calculated as follows:

Total Market Return = [(Ending Value – Beginning Value) + Dividends]/ Beginning ValueTo get the value in percentage, multiply the previous result by 100.

So,

Market Return (in Percentage) = Total Market Return * 100Hope, you will now be able to differentiate between market return and portfolio return and you will be able to calculate market return. If you have any further queries, please feel free to ask. Thank you!

With Regards,

Md. Tanjim Reza Tanim